What’s Driving California’s Mass Exodus?

it's been called the anti-california dream the tech exodus the great migration between 2008 and 2019 18 000 companies have left california for more tax and regulatory friendly states dom we're talking about elon musk moving from california to texas oracle's saying they are changing their corporate headquarters from redwood shores california to austin texas and while it may be an overstatement to say california is hemorrhaging people some of california's wealthiest residents like elon musk are leaving too california has to realize that eventually all of the anti-business laws and regulations they passed were going to catch up with them erica douglas was an early part of the exodus she moved her seo software company whoosh traffic and her employees to austin six years ago i can remember writing one check to the state of california for one year and it was like 24 000 for a year and that was just income tax to the state that was not federal tax the state's population and job growth have both slowed to a trickle census data shows more than 650 000 people left in 2019 after seven years in a row where departures were on the rise in fact california has lost more people to other states than it's gained for much of the last two decades and with the rise of remote work in 2020 adding extra flexibility over 135 000 more people left california than moved here the third largest net migration loss ever recorded as we lose really successful businesses such as oracle and hewlett-packard that changes how many high-paid jobs we're going to have change is really the whole nature of the state it changes how many tax dollars go into sacramento how many tax dollars fund our schools whether there's money left over to repair roads and bridges it's really a huge problem that the state is facing we ask the experts and those leaving what's behind this trend can anything be done to reverse it or is this a true shift for business in california as we know it for a century and a half california was in an almost constant state of growth with booming business and expanding population there's something magic in california the culture just seamlessly and consistently moves towards what's next with new ideas california's gold rush that started in 1848 led to one of the largest migrations in u.s history with hundreds of thousands coming from across the country and the world the population explosion qualified california for statehood in 1850 just a few years after it was seeded by mexico california was an economic powerhouse by the end of the century home to iconic brands like wells fargo and levi strauss scientists and researchers started flocking to the bay area in the early 1900s when san francisco's port and nearby moffett field made the area a major hub for early telegraph radio and aerospace industries stanford university founded in 1885 led the way in encouraging students to commercialize their ideas leading to graduate students to start what many consider the first silicon valley startup in 1939 hewlett-packard california has been the leading indicator in software digital technology modern mobility the environment the space industry and is the front door between the united states of america and the pacific rim and the asian markets so watching our state fumble and stumble is not just something that's a california issue it is a national and global issue california's economy has grown to the fifth largest in the world it had 65.6 billion dollars in vc investment in 2019 by far the highest of any state all that venture capital is concentrated in san francisco and silicon valley but once those businesses do get a cash infusion from venture capital and get on their feet and become successful then the advantage of being in california silicon valley is much less and that's when we see them leaving for the longest time you wanted to run in those circles if you were in tech you needed to be able to run into other people in tech and have that you know that brain there in one place increasingly i think hp and others are sending the signal in a much more remote work oriented environment where we have the tech and we've also had this forced experiment in remote work that basically succeeded that silicon valley is wherever you want to be hp is moving its enterprise division headquarters to houston and many others are following oracle founded in the 70s alongside apple and atari announced in december that it's relocated its headquarters to austin palantir is relocating to denver elon musk moved from los angeles to austin where tesla is building its next gigafactory what really is surprising is the really major big companies that have put down routes here are the ones they're leaving the mom and pops are going as well but when they leave they take 20 workers or 30 workers with them they're not taking thousands of workers with them and they're not taking elon musk other major companies that have moved their headquarters out of california in recent years include toyota charles schwab nestle and jamba juice a 2018 study found that 1800 companies left in 2016 alone relocating mostly to texas followed by nevada arizona colorado oregon and washington this has been a trend for a while but it's accelerated now we have high taxes high housing costs cost of living in california is about 50 percent higher than the median state public services are not being delivered so we've never really had that all of that combination occurring as we've had in the past and we've never had alternative places to move to so for example now in texas in austin texas there's a big tech hub there now that the pandemic has largely made commute times irrelevant moving is easier and makes more financial sense even if you would look and say i wouldn't found the company in california now there are huge costs in actually relocating your company but those costs are less when a lot of your employees aren't in the office anyways may not be coming back and when california is saying we might raise taxes substantially while other states are saying we're okay we're not raising them in a study of more than 2700 bay area workers two of every three say they'd consider relocating if they could always work from home something dropbox twitter and facebook have offered with the caveat that moving out of california could trigger a pay cut if i can live in utah and work for a california company or if a my california company can move to texas and i can stay or move anywhere else then suddenly it's a lot easier to make the tax and other business cost decisions the front of mind decisions an edelman intelligence survey found that 53 percent of californians are considering leaving the state with the desire highest among millennials i wanted to understand what the rest of the world was i didn't want to be stuck in my tech bubble for the rest of my life and that's also one of the reasons i came to austin early i think it's a reasonable question to say at what point does the state break we're seeing that tested right now as we see the remote work environment wealthy influential individuals leaving recently include oracle's larry ellison dropbox ceo drew houston palantir co-founder joe lonsdale high-profile investors and influential personalities like keith ruboy tim ferriss ben shapiro peter attia and joe rogan who's leaving california for texas i just want to go somewhere in the center of the country somewhere it's easier to travel to both places and somewhere we have a little bit more freedom elon musk also cited freedom as a major reason for his move to texas criticizing california's strict handling of the pandemic last may musk openly defied california shutdown orders by reopening his plant facing strong reactions from some politicians if you're smart enough to build spacex paypal tesla maybe we should have sat down with you and asked you what do you need to be more successful in california and then there's all the other non-pandemic related regulations that come with living in a blue state democrats hold a veto-proof supermajority in both houses of the california state legislature what some call progressive policies others see as unfriendly to business we've really become highly regulatory when it comes to fuel use automobile emissions all those types of things water cap and trade to try to keep businesses from polluting too much that's an imposition for some folks all these things together make it more costly to do business in this state cnbc measures states on more than 60 different metrics in 10 key categories of competitiveness in 2019 virginia texas and north carolina took the top three spots california came in 32nd and came in last when judged on the cost of doing business when it comes to tax structure for business the tax foundation ranks california at the very bottom also with only new jersey ranked lower what businesses are finding is that they're able to create much more value for their shareholders they're able to generate higher profits they're able to hire very high quality workers at lower salaries in other places while tax rates increase based on how much you make california's top marginal income tax rate of 13.3 percent is far higher than any other state new york's for example is 8.8 percent this is a personal income tax form in california i never want to see one of these in the great state of texas nine states including texas have no individual state income tax on wages now these states all have other taxes that offset this to some degree texas has high property taxes washington has gone after businesses with a lot of unique business taxes but nonetheless when you look at california that's high on almost every tax across the board even a state that has some trade-offs can look really good there are groups working on incentives to keep businesses and innovators in the state even if they're looking to leave high bay area costs behind you can take that bay area level income and it goes so much farther the greater sacramento economic council launched a campaign to attract remote workers with newfound flexibility i told all three of my kids that are in their 20s if i'm starting my life in my 20s and i'm picking any place in the world to start it i'm picking california on a state level california has approved giving more than 73 million dollars in tax credits to 22 high growth companies over the next five years through its california competes income tax credit but the application process is highly competitive still california's business taxes are some of the highest in the nation and certain cities tack on even more san francisco just passed what they call the overpaid ceo tax where companies will start paying taxes depending upon the ratio of the ceo salary to the median worker at that location while the super wealthy may be fleeing disproportionately high taxes the cost of living comfortably is a consideration for everyone in california i always rented when i was in the bay area i never had enough money to buy a house there i bought my first house here in austin you can live 20 30 minutes away and have a house for three four five hundred thousand dollars and have a nice little backyard and a place for your dog to roam around and a place for your kid to play having a little bit more space and um you know land and it just it just feels right realtor scott shepard relocated his family from riverside california to northern idaho in 2019. all of our major line items across the board are significantly lower at the rate of 30 to 40 percent you know we've got 1.98 for a gallon of gas shepard runs exitcalifornia.org one of a growing number of online relocation companies helping people move he says about twice as many people have been reaching out about the service since the pandemic began lots of restrictions lots of regulations freedoms being taken away housing is impossible in california we are by all estimates between three and four million units short of housing the median single-family home in san francisco right now cost about 1.6 million dollars rent in san francisco is easily five to six thousand dollars per month so you multiply that and that means you're not hiring someone who is technologically advanced and skilled without paying them 150 170 000 per year and you simply don't need to pay that type of salary in texas although california remains a top destination for people moving from other countries and rich transplants relocating from out of state the white house reports nearly half of the country's unsheltered homeless people live on the streets of california and a growing number of middle and low income people are moving out of state with the majority of those leaving reporting an annual income under a hundred thousand dollars whether they are people at the car wash baggers at the supermarket attendees at the rest homes and what are we doing to assure ourselves that we'll be able to keep that critical part of our employment infrastructure those folks at the bottom because we're toast without it of those surveyed by edelman intelligence 53 cited housing as the primary motivator for relocating hiring in a state with a lower cost of living also helped douglas get her startup off the ground it opens up the ability for people to work for startups the ability for people to not have to feel like they're paying their whole life savings for an apartment every month and my ability as a business owner to be able to hire those people at a very reasonable and and fair rate but a rate that's not going to be like a google 450 000 a year right out of the gate type of thing meanwhile the pandemic has robbed california of some positives once used to justify its high cost of living when i went looking to raise money for my startup a few years ago a lot of investors in san francisco said well i want to be able to sit in on board meetings in person you know i will only invest within a 50-mile radius of san francisco because i want to be able to sit on those board meetings well now board meetings are conducted via zoom and the minutes are distributed through email now if you can work anywhere you don't care you can go somewhere else that has a lower cost of living and a lower cost of taxation so a lot of states not just california but new york and other states that have historically banked on offering something unique have to worry that they're not so unique anymore with an economy bigger than many countries will california feel the impact of big companies leaving and with super earners paying 40 of the state's tax revenues can california afford to lose billionaires like musk one of the richest men in the world some states like new jersey has actually had to amend budgets when a single billionaire left the state california would not be at that point where elon musk leaving california means they have to amend their budget but as he leaves and as companies like hp and oracle and others relocate a significant amount of their operations this has a huge impact both immediately and in the long term the investments they would make them being located in a different place the employment opportunities for those who have left there are new challenges to contend with in new states including resistance to californians changing things elsewhere this is not an invitation to simply transfer the california to texas we texans are very inviting to people from california but that doesn't mean we want you to california or texas i don't want austin to just become the next san francisco i think what we want is to have austin's own unique culture uh make startups that work for a while there i was a little bit insecure to let anyone know that i was from california when i first moved here i had california plates and i had individuals giving me a nice steady honk of the horn behind me on the freeway to let me know that they weren't happy that i was in front of them where shepard moved in idaho as in other states california transplants drive up housing prices people who live here they're getting priced out of the market i mean you've got 10 15 potentially even 20 people making an offer on the same property and there are certainly things to miss about the golden state my heart still you know has a piece of california in it it's a beautiful state and it has so many wonderful things about it i still have family there but until i see things changing statewide i don't anticipate things changing anytime soon still a few big names like twilio ceo jeff lawson and airbnb ceo brian chesky have committed to staying in the state and specifically the bay area if enough feel that way that could work the challenge is that at some point they'll do the calculation of okay what would my books look like i was in california san francisco versus where i in texas and many of the biggest silicon valley based companies haven't announced any plans to leave google apple they are doing so well that the last thing they have to think about is moving it's very much in their interest to stay here and get the latest of what's going on mine if you will these beautiful minds at places like stanford and cal but if california's people are the true draw will it lose its edge if enough of them leave some say there's a tipping point at which the flow of businesses and people out of california outpaces its incubation of fresh ideas that entices businesses to come and to stay it's a challenging issue that california faces and there's really no solution other than to make the state more competitive in terms of business costs and taxes in terms of housing costs until that's done california will probably continue to lose businesses to other states for now big tech stakeholders will watch to see how legislators handle upcoming proposals some would target tech companies specifically taxing data or digital services one of the worst things you could do right now is signal to these companies that are on the fence if you stay the taxes are going way up but that's the conversation we're having right now and there comes a point in which a lot of businesses are going to say we don't need to be in california and increasingly we can't afford to be other proposals could raise the corporate income tax to more than double the rate in all but one other state or push the combined federal california top marginal tax rate to a whopping 53.8 percent i'm hopeful state legislators will take a step back and ask themselves we better not do this we're risking the state's economic future we should make california a more friendly state to do business and we don't want to drive away anymore really incredibly productive innovative people we've had massively bad recessions we had a 35 billion dollar budget shortfall in 2001 it cost the governor's job but we've had those before somehow we come back but you never know when that time is going to be the last you

Channel: CNBC

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Keywords: CNBC, business, news, finance stock, stock market, news channel, news station, breaking news, us news, world news, cable, cable news, finance news, money, money tips, financial news, Stock market news, stocks, Austin tech city, Tesla austin, apple austin, oracle austin, Elon Musk austin, california silicon valley, is texas the new austin, Austin tech companies, Joe Rogan texas, Austin silicon valley, rise and fall of California, california wealth tax

Id: Ez90rXhMWjE

Length: 19min 9sec (1149 seconds)

Published: Sat Jan 23 2021

Reddit Comments

[u/Withoutdefinedlimits]

Yup rented my 2 bedroom apartment in June for $1725 and they just rented the identical unit below us last week to a family for $2500. Insanity. And on top of that no one can use the amenities bc of Covid.

[u/LeahJefferson]

The majority of this rent increase is in the greater Sac area, not midtown/downtown right? I live in a semi-high end apartment complex on the border of midtown and downtown, and my rent only increased by 2%. Lots of my friends who live in midtown barely saw any change in rent also. Feels like midtown already had it's explosion of rent prices and now it's expanding into other places

[u/SarcasticTrauma]

I think the reason why Sacramento rent prices increased so much is because everyone who was working in the Bay Area started working remotely when the pandemic hit. They could either stay where they were at or move to a place where the cost of living was cheaper while still making the same amount of money.

I’m not sure what the current cost of living comparison of Sacramento to the Bay Area is but I’m willing to assume it’s cheaper to live here.

[u/_wisky_tango_foxtrot]

Big tech companies got huge tax breaks to move into San Francisco. The adjacent housing market was already crowded and soon became impossibly expensive. These libertarian run companies just use up cities resources and move on to the next city. You can expect the exact same thing to happen in Austin in the next decade. The gold Rush ended. The tech bubble is also going to burst.

[u/vtribal]

Dont Bay Area our Sacramento

[u/[deleted]]

One important thing to note here is that California could apply a few fixes and IMO actually be better than Texas in a lot of ways. We would probably only need to do two things:

1. Lower taxes across the board by just a bit

2. Have a housing boom that brings down the cost of living

   California's income tax is talked about like a bad thing but Texas avoids income tax by charging higher property taxes and other taxes that are recessive. Here is how much you pay in Taxes according at least to https://itep.org/whopays-map/:

Texas:

• Lowest 20%: 13% of income
• Next 20%: 11%
• middle 20%: 9.7%
• top 40%: between 8.6-3.1%, top 1% pay 3.1%

California:

• Lowest 20%: 10.5%
• Next 20%: 9.4%
• middle 20%: 8.3%
• top 40%: between 9-12.4%, top 1% pay 12.4%

So why don't the bottom 60% move here? Because the cost of rent and really everything else is so high. Texas actually has a big regressive tax problem. But it doesn't matter because our COL is so bad.

[u/naygor]

Laughed my ass off when it listed ben shapiro, elon musk, and joe rogan among the VIPs we should concerned about leaving the state.

[u/suck_my_sock]

Wah! We want to pollute and pay our employees nothing! Were going to tExAs! Lol. All I can say is good. Leave. Bye baby!

[u/true_blue_09]

Still cheap AF!